Pending Home Sales Slump In April

This morning the National Association of Realtors released the April data for their Pending Home Sales Index. Here is an excerpt from the latest press release:

“With nearly all states under stay-at-home orders in April, it is no surprise to see the markedly reduced activity in signing contracts for home purchases,” said Lawrence Yun, NAR’s chief economist.

The latest pending home sales numbers reveal the greatest decline since NAR begin tracking such transactions in January 2001. However, Yun expects that April will be the lowest point for pending contracts, and the month of May, consequently, will be the lowest point for closed sales.

“While coronavirus mitigation efforts have disrupted contract signings, the real estate industry is ‘hot’ in affordable price points with the wide prevalence of bidding wars for the limited inventory,” he said. “In the coming months, buying activity will rise as states reopen and more consumers feel comfortable about homebuying in the midst of the social distancing measures.” (more here)

The chart below gives us a snapshot of the index since 2001. The MoM came in at -21.8%, down from a 20.8% decrease last month. Investing.com had forecast a decrease of 15.0%.

Over this time frame, the US population has grown by 16.1%. For a better look at the underlying trend, here is an overlay with the nominal index and the population-adjusted variant. The focus is pending home sales growth since 2001.

The index for the most recent month is 32% below its all-time high in 2005. The population-adjusted index is 41.5% off its 2005 high.

Pending versus Existing Home Sales

The NAR explains that "because a home goes under contract a month or two before it is sold, the Pending Home Sales Index generally leads Existing Home Sales by a month or two." Here is a growth overlay of the two series. The general correlation, as expected, is close. And a close look at the numbers supports the NAR's assessment that their pending sales series is a leading index.